Retiring Wise Blog

What is a Reverse Mortgage?

Reverse mortgages have been recognized in the media as an effective tool for seniors creating a successful retirement plan. However, the financial verbiage can make it difficult to understand what exactly a reverse mortgage is or how you can use it. Older Americans may find it advantageous to look into the various options the reverse mortgage can provide to their retirement plans.

The Breakdown

A reverse mortgage can change the way you live your retirement. That’s why it’s important to make sure you are making an informed decision. We’re here to help.

Traditional vs Reverse Mortgages

When it comes to your mortgage; you may have a unique alternative. A Home Equity Conversion Mortgage (HECM), more simply known as a reverse mortgage, is a program that is specifically designed for homeowners who are 62 years and older. Reverse mortgages are similar to traditional mortgages in the following ways:

Money is borrowed based on the value of your home.

You still remain the owner of your home and are still responsible for paying your property taxes, homeowners insurance, and home maintenance costs.

The home may be sold or you may pay off the loan early with no prepayment penalty.

Although there are similarities, there’s several aspects of the loan that allow the reverse mortgage product to stand alone. A reverse mortgage is different from a traditional mortgage in that there is no required payment every month, because your proceeds first pay off your existing mortgage (if you have one). Any remaining money is yours to use however you want. Although the reverse mortgage does pay off your mortgage, homeowners are still responsible for all property taxes, homeowners insurance, and maintaining the home.

Eligibility

To be eligible for a reverse mortgage product, you or your spouse must be 62 years or older, own your home, and have enough equity in your home. You may own your home free and clear or still have an existing mortgage.

The Advantages

One advantage of a reverse mortgage is that you choose the way you use it. As a qualifying client, you can use your reverse mortgage to plan for your future, supplement your income, fulfil an immediate need, or to consolidate debt. Some use it to simply alleviate stresses of financial burdens that are preventing them from entering a peaceful retirement.

Everyone’s situation is different. Another advantage of a reverse mortgage is that there are a few options to help best meet your individual needs.

Products

Pays out one lump sum amount and locks the interest rate in place at the time of closing. This option can be used to pay medical bills and property liens or make improvements on your home. Fixed rate reverse mortgages have the same interest rate from the time of the loan closing until the time the loan comes due.

Adjustable Rate

The interest rate on an adjustable rate loan may change throughout the life of the loan. You can draw funds from a line of credit at any time, receive monthly disbursements, get a lump sum, or do any combination of the three. Any available amount you leave in your line of credit will increase in value over time, even with the possibility of exceeding your home’s value.

Purchase

A HECM for Purchase is a unique option that lets you buy a home without having to make monthly mortgage payments, as long as you live there. This product is often used by clients who want to move closer to friends or family, to a more desirable climate, or into a home that better suits their physical needs.

To ensure you choose the best option for your specific financial goals, be sure to consult your financial advisor in addition to one of our specialists at One Reverse Mortgage.

The Takeaway

Upon the closing of your loan, any remaining mortgage payments on your home will be paid and the rest of the funds may be used at your disposal. Once the borrower decides to sell the home, moves, or passes away, the loan will come due. However, you will never owe more than your home is worth. It can be repaid by selling the house or from the heirs purchasing the home.

There are many uses for reverse mortgages. They can be a great tool to utilize when planning a successful retirement. They can be used whether you’re dealing with an unexpected financial incident or to just simply want to change the way you live your retirement. Call and speak to one of our licensed specialists today to get more in-depth information about how a reverse mortgage can work for you!

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